About Me

greekdefaultwatch@gmail.com
Natural gas consultant by day, blogger on the Greek economy by night. Trained as an economist and political scientist. I believe in common sense and in data, and my aim is to offer insight written in language that is clear and convincing.

08 October 2006

Lessons from OPEC

The latest news suggests that OPEC has agreed to cut its quota by 1 mbd, bringing its target output down from 28 mbd to 27 mbd (in August, OPEC produced 30.04 mbd, which included 2 mbd from Iraq, which is excluded from quotas). But reaching consensus was not easy: first came production cuts from Nigeria and Venezuela totaling about 200 kbd. Saudi Arabia protested the move to voluntary cuts, though its own production was coming down too. It took a while before others agreed to reduce quotas as well.

From this picture emerge two interesting points. The first is about OPEC’s cohesion, which fluctuates wildly, though the organization usually comes together more easily when tasked to defend rapidly falling prices (rather than, say, cut production to hike prices). This should serve as a reminder to those who have hasten to notice an “axis of oil” emerging to threaten Western interests. Even OPEC, the most concrete manifestation of the axis, finds it hard reach consensus on oil production. It is hard to see how so varied a group can hold together any other meaningful political alliance for a considerable period of time.

The second point is about asymmetrical power. The common assumption these days is that oil producers have all the power. But the drop in oil prices has seriously jeopardized their fiscal plans. Granted, they have too much money in the bank for anyone to claim that these regimes are in trouble—a $60/bbl world is still great for them. But given how resilient economies have proven to high oil prices, it is not unreasonable to state the oil exporting countries have more to lose from low oil prices than importing countries from high ones.